Sumary of Chinese property developer’s debt struggle rattles investors:
- BEIJING (AP) — One of China’s biggest real estate developers is struggling to avoid defaulting on billions of dollars of debt, prompting concern about a broader economic fallout and protests by buyers of unfinished apartments.
- Evergrande Group appears likely to be unable to repay all of the 572 billion yuan ($89 billion) it owes banks and other bondholders, financial rating agencies say.
- That might jolt financial markets, but analysts say Beijing is likely to step in to prevent wider damage if Evergrande can’t manage an orderly resolution of its debts.
- “In the unlikely event that a default unsettles the broader property market, significantly disrupting sales and investment, this could have farther-reaching macroeconomic effects,” said Fitch Ratings analysts in a report Wednesday.
- Evergrande ran into a cash crunch after its borrowing to build apartments, office towers and shopping malls collided with pressure from the ruling Communist Party to reduce corporate debt loads that are seen as a threat to the economy.
- Beijing has made reducing financial risk a priority since 2018. In 2014, authorities allowed the first corporate bond default since the 1949 communist revolution.
- Economists say a financial crisis is unlikely but debt could drag on economic growth by diverting money from consumption and investment.
- Evergrande’s struggle has prompted warnings abroad that a broader financial squeeze on real estate — an industry that propelled China’s explosive 1998-2008 boom — could lead to trouble for banks and an abrupt and politically dangerous collapse in economic growth.